Could insurtech ChainThat help tilt power towards brokers?

ChainThat provides insurance process automation using Distributed Ledger Technologies DLT. Standard startup advice is to focus at the outset, to target niches rather than broad sectors. Think Facebook and Harvard. In the London market, there are a lot of ‘Facilities’ which are mini consortia, which tilt the power towards brokers. Facilities are ChainThat’s current niche.

ChainThat’s team has a background in Commercial and Specialty, so they have a deep understanding of the processes in their target sector. While they’re mainly working in the London market, they also have clients across Europe and the US.

Surprisingly for a tech-led team, their focus is not on blockchain. CEO David Edwards said: “We try to focus on the business value that the solutions can bring. We are trying to move away from the actual underlying technology. It’s more about the distributed nature of the applications allowing them to make sure what I see, you see, and we don’t have a centralized service provider holding all your data and potentially trying to monetize that data, it’s your data, you own it.”

The team had a typical startup pivot before arriving at their solution. Back in 2015, they planned a decentralized placement platform for the London market, but then Lloyds announced they were investing several million in a centralized solution.

Facilities and the power of brokers

Facilities make sense because pre-formed consortia and DLTs are a natural match. In a typical facility, a broker may have an arrangement with a group of carriers for a particular line of business. Eg. there are four carriers, and each will get 25% of a specific risk. So there is a need to share the data and have one version of the truth.

The idea behind facilities is to create some scale for the broker and get a better deal, though some carriers such as Chubb and Navigators argue it ends up with brokers getting more commission and the carriers being squeezed. The UK’s Financial Conduct Authority has started a review of the wholesale insurance broking market, and facilities are expected to get some attention.

Edwards commented “it’s meant to be more efficient for the customer, so they should actually get cost savings by using facilities. I think we are going to see a lot more facilities coming to both the London market and the global markets over the next few years.”

Talking about the role of brokers, he continued: “What we are seeing is all about trying to get the capital closer to the risk, so like we’ve seen with the B3i side of things. I think there is potentially a lot of disintermediation going on there. But on the flip side of it, I think the brokers, because they own the distribution at the moment, will they start to take on more of the services and the offerings that the insurers do, and then kind of open that up to more diverse sources of capital coming in? So it’s hard to call at the moment what it’s going to look like.”

Consortia

The larger insurers and reinsurers are part of at least one of the big consortia, B3i or RiskBlock. Some of ChainThat’s clients are involved, but he says they like the agility of a startup.

“What we find is everyone wants to keep an eye on what’s going on in the consortia, whether they will be successful. There are a lot of other large insurance projects that kind of invest a lot of money but don’t really deliver much. I think we see they are hedging their bets now, ” said Edwards.

ChainThat’s roadmap

Beyond setting up the facility, ChainThat has modules that deal with reinsurance, accounts and settlement, and treasury.

They’ve already done multiple paid PoCs, and are planning a production release for late Q2. For the rest of the year, they have three facilities that they plan to move onto their platform. They are interested in smaller ‘value focussed’ consortia. With a small number of members, it’s easier to accommodate their requirements so they can see the value the platform brings and then move more facilities onto the platform.

But they also want to make sure their solution will be compatible with the global networks like B3i, Maersk, and RiskBlock, so they are Accord compliant.

ChainThat completed a round of funding late last year which Edwards reckons gives them two and half years runway. The financing came from insurance technology consultants, Xceedance.